Faculty of Law

CHAPTER 6: Problems with the Formation of a Contract

 A. VOID & VOIDABLE CONTRACTS
• basic requirements for valid contract:
i) contractual capacity
ii) agreement
iii) legality
iv) possibility of performance
v) formalities
vi) certainty
• if one is missing the contract = void
• void = as if it never existed, no rights/obligations
• if someone has already performed in terms of the contract then they give back
what they received & it’s as if they never contracted
 Voidable
a) The cause
• all requirements for valid contract are present, but there’s a problem with the way
agreement was reached
• one of parties is guilty of:
i) misrepresentation
ii) duress
iii) undue influence
• a voidable contract is a valid contract and will remain in force until the innocent
party decides to set it aside after proving requirements for 1 of the above 3
b) The result
• innocent party (IP) has a choice:
i) set aside/rescind & claim restitution
ii) abide by the contract
• voidable contract is valid until IP rescinds
• if chooses not to rescind, valid & binding
• if it’s impossible to return what was received, person must give money equal in
value to what was to be returned
• void contract can never be valid, voidable contract is valid until rescinded
 B CONTRACTS THAT ARE VOID DUE TO A LACK OF
AGREEMENT
• contract void due to lack of agreement = mistake
• 2 types:
1. unilateral mistake
2. common mistake

1. Unilateral mistake
• parties are misunderstanding each other
• either one can be wrong, not thinking the same thing = not in agreement
• 3 requirements for unilateral mistake to make contract void:
a) must be about facts concerning the contract
b) must be material
c) must be reasonable
a) Mistakes about facts concerning the contract
• must be about the facts
b) Material mistakes
• significant, important or serious
• must have influenced the IP to enter the contract, had he known the truth he
wouldn’t have contracted
• law has categorised mistakes it considers material
i) Error in negotio = mistake about the type of contract, eg: contract
of sale
vs donation
ii) Error in corpore = mistake about subject matter, eg: selling car A
vs buying
car B
iii) Error in persona = mistake about person’s identity, eg: selling
house vs
hiring employee
• error in qualitate = mistake about attributes/qualities of contract object =
generally not material, eg: 10 year old car vs 11 year old car
c) Reasonable mistakes
• mistake must be one a reasonable person would make
• mistake is not reasonable if mistaken person was negligent
• uses an objective test = compare the person’s behaviour with behaviour of a
reasonable person
• reasonable person = imaginary person who represents average, normal, careful
person
• standard against which we measure the actual behaviour of certain real persons
• if real person doesn’t meet the standard = negligent/careless
• therefore, if reasonable person would not have made the same mistake, then
mistake is not reasonable and contract is valid
• caveat subscriptor = let the person signing beware
• assumes that a reasonable person reads & understands a contract before signing
• you are bound to written contract even if you haven’t read it
• if you sign without reading, you’re negligent
• any mistake you then make = not reasonable
• See George v Fairmead
• Rule won’t apply if:
– Other party misled the mistaken party;
– Other party was aware that the mistaken party didn’t know about the term;
– Mistaken party was blind or can’t read
• Consumer Protection Act provides that where a supplier sells goods or services in
the ordinary course of business and has included a term that either:
– limits the supplier’s liability,
– makes the consumer assume more risk,
– imposes an obligation on the consumer, or
– relates to an unusually risky activity that could result in injury or death

• the supplier has an obligation to ensure that:

– the term is in plain language,
– the customer’s attention is drawn to the term,
– the consumer is given adequate opportunity to read the term, and
– must also sign next to the term if it involves unusually risky behaviour
Both parties are labouring under the same mistaken impression
2 requirements:
a) mistake must be shared by both parties
b) mistake must be material = parties would not have contracted had they known
the true facts
doesn’t have to be reasonable & doesn’t have to be about facts (unlike unilateral
mistake)
if common mistake occurs, contract = void
parties returned to position they were in before contracting

Verbal agreements and errors.

if parties agree verbally to a contract, but they make error when writing it down
but the agreement isn’t accurately reflected on paper
parties can apply to court for rectification
mistake doesn’t make contract void because they had agreement
must show the content of written document differs from verbal agreement & what
terms of verbal agreement are
 C. CONTRACTS THAT ARE VOIDABLE DUE TO
MISREPRESENTATION
• contract is voidable, not void
• IP has a choice – they can either rescind or abide
• representation = statement of fact/conduct made by one contracting party to
another before contract is concluded, with the intention of persuading the 2 nd party
to agree to the contract
• misrepresentation = false/misleading representation
• relates to whether the person making the statement knew/should have known it
was false
 1. When does misrepresentation make a contract voidable?
• 6 requirements:
a) must be untrue
b) must be about fact
c) must be material
d) must be made by one of the contracting parties
e) intention to induce the other party to contract
f) effect must induce the other party to contract

a) Must be untrue
• can make a misrepresentation through words, actions or silence
• if law says a party had a duty to disclose some NB fact but kept quiet =
misrepresentation by non-disclosure
• Duty to disclose information exists in the following situations:
― a positive statement which is half true – the duty is on the party to
disclose the other part of the truth
― true statement is made but circumstances change – duty to disclose
new state of affairs
― Seller knows of a latent defect in property being sold – has a duty to
disclose this info
― Where one party takes active steps to hide certain facts about thing
being sold – the duty is on the party to disclose (see Dibley v Furter)
― Parties are in fiduciary relationship - there is a duty on the parties to
protect each other’s interests by disclosing information when
contracting
― Besides words/silence, untrue statement can also be made by the way
someone acts

• See Trotman and another v Edwick

b) Must be about fact
• making a false statement of fact by misrepresenting thoughts/state of mind
• untrue statement about what the law says = doesn’t qualify
• opinion = doesn’t qualify
c) Must be material
• help to induce a reasonable person to contract
• If the statement induced a reasonable person to enter into contract, it can be
recinded
• Had the person known the truth, would they still have entered into the contract?
• If the answer to the above question is “no”, then the misrepresentation was
material and the contract is voidable
• Lourens v Genis
d) Must be made by one of contracting parties
• if misrepresentation made by 3rd party = contract not affected
• can sue 3rd party if misled by him
e) Intention must be to induce other party to contract
• reason why one party misrepresented the facts was to persuade the other party to
contract
• if misrepresentation not made with this intention = contract valid
f) Effect must be to induce other party to contract
• The end result was that the person entered into the contract
• person claiming misrepresentation must show that he would not have entered into
the contract had he known the truth
 2. Types of misrepresentation
• 3 types:
a) fraudulent misrepresentation
b) negligent misrepresentation
c) innocent misrepresentation

a) Fraudulent misrepresentation
• 3 requirements:
i) party makes a statement intentionally
ii) party knows it’s untrue/without believing it’s true/not caring whether it’s true
or not
iii) intending that the false statement should persuade the other party to contract
• Party can claim damages if you suffer as a result of fraudulent misrepresentation
b) Negligent misrepresentation
• negligent = not taking enough care
• 4 requirements:
i) person made an untrue statement that he believed to be true
ii) he didn’t check whether statement was true/accurate
iii) reasonable person would have taken care to check accuracy
iv) person is negligent because he didn’t meet the standard of carefulness of a
reasonable person
• can claim damages if you suffer as a result of negligent misrepresentation
• difference between fraudulent & negligent?
• fraudulent = person knows/doesn’t care that statement is false
• negligent = person believes statement is true
c) Innocent misrepresentation
• misrepresentation is neither fraudulent nor negligent
• person makes the untrue statement believing it to be true, & reasonable person
would not have behaved any differently
• law does, however, allow the buyer who has been misled to receive a reduction in
the purchase price (equal to the difference between the market value of the item
and the price paid)
 3. Consequences of misrepresentation
• can be remedies in law of contract &/or law of delict
a) Consequences in terms of law of contract
• if misrepresentation meets 6 requirements, IP can choose to rescind or abide by
contract
• rescind = return what they received, abide = contract is valid
b) Consequences in terms of the law of delict
• IP can claim damages
• IP has the right to be put back in the financial position he/she would have been in
had the misrepresentation not happened
• NB: A person can only claim damages if the misrepresentation was negligent or
fraudulent
• An IP cannot claim damages if the misrepresentation was innocent, even though
the contract is voidable
 D. CONTRACTS THAT ARE VOIDABLE DUE TO DURESS
• if person agrees to contract because he was threatened
• consent = flawed because it wasn’t given freely
• contract is valid but voidable as consent was improperly obtained

1. When does duress make a contract voidable?

• 5 requirements/conditions:
a) must have been a threat of harm to contracting party/his family/property
b) threat must have been of imminent/inevitable harm
c) fear that the IP felt because of the threat must be reasonable
d) threat must have been unlawful/immoral
e) threat must have persuaded the IP to enter into the contract
 2. Consequences of duress
• if all requirements are met = contract is voidable
• IP can rescind/abide & can recover damages
• can also recover damages if decides to abide
• damages is the amount of money needed to put the IP in the same position he
would have been in had he not been forced to contract
 E. CONTRACTS THAT ARE VOIDABLE DUE TO UNDUE
INFLUENCE
• when one party has such an influence over IP he can’t think for himself
• enters into a contract that he would not normally have entered into as a result of
this influence
• consent is not given freely/voluntarily
• usually from a long-term relationship where one party develops power over IP
• contract = voidable because consent was gained in an improper way
 1. When does undue influence make a contract voidable?
• 5 requirements/conditions:
a) one party has influence over other party
b) influence must have weakened the ‘weaker’ party’s powers of resistance to
the point that he’ll do exactly what ‘stronger’ party wants him to do
c) stronger party must have used his power in a corrupt way
d) influence must have caused the weaker party to contract
e) contract was not in the best interests of weaker party

2. Consequences of undue influence

• IP can decide to rescind/abide

• IP can claim damages
• See Preller & Others v Jordaan
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